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Reader Question: Buying a House Without a Credit History?

A reader e-mailed wondering if it were possible to obtain a mortgage without a credit history. I posed this question to Robb Severdia of Guarantee Mortgage in Portland.

If a couple came to you with a combined income of $75,000/year, 20% saved for a down payment, but no credit history whatsoever (as unlikely as that might be), would you still loan them money? Does the system allow for personal evaluations in situations where no credit history exists?

Severdia writes that it is possible to obtain a mortgage without a prior credit history, though the terms may not be ideal.

If potential borrowers come to me with solid income and job history, and offer a 20% down payment, but have absolutely no credit cards or credit history, can they get a loan? Yes, they can get a loan, but neither the fees nor the interest rate will be optimal.

Lenders consider that someone who has absolutely no credit score (which means no credit activity for at least six months) actually has a credit score of zero. In that case, some lenders consider “alternative” sources of credit ratings such as utility bills, cell phone, gym membership, rent etc., The lender typically requires at least four of these alternative sources, and each source needs to be reporting for a minimum of 12 to 24 months. This type of financing will typically require an FHA loan, which is a federally insured loan program that is great for some borrowers, but not for others.

If you have a question about personal finance, contact me and I’ll do my best to find an answer.

3 Responses to “Reader Question: Buying a House Without a Credit History?”

1

dabrfesays:

14 June 2006 at 7:19 am

My wife and I were in a similar situation when we bought our house. I had had a credit card since high school, but I used it very rarely. Other than that, we had no debt (and therefore no credit history). We were also putting 20% down. The mortgage company verified our payment history with our landlord and our utilities company (about 1.5 years history each). We got a standard 15-yr mortgage (not FHA) for what I thought was a decent rate (decent enough that in 7 years I haven’t done a re-fi). I don’t remember what the fees were, though we did pay a point or so to bring down the rate.

We got our mortgage the same company who carried our insurance, so that have have helped some in securing the mortgage.

I moved to Canada after 8 years in the US and when I wanted to purchase a home, I did not have credit history in Canada. But I asked them if they would do a US credit check and they did. I did put 40% down though, because I could. Got one of the lowest rates around at the time. I am planning on moving back to the US in a bit and will have to check if I can have Canadian credit check done in the US.

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